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Asia & China equities 2021 – Outlook in 3-D: domestic, digitalisation, diversification

Key Takeaways

We remain constructive on Asian regional and Chinese equity markets for 2021 and beyond, as the region is strongly rebounding from 2020’s pandemic-led crisis.

  1. Asian equities had a stellar year in 2020, with the MSCI All Country Asia ex-Japan index outperforming both the MSCI US and MSCI Emerging Markets indices. China, Taiwan and South Korea performed particularly well, supported by better controls of the pandemic, while ASEAN and India faced longer lockdown conditions and slower tourism. Gradual recovery will continue to be led by North Asia while the rest of Asia catches up.
  2. In particular, China was one of the world’s most resilient economies in 2020. Decisive lockdown and policy measures enabled a quick broad-based recovery, which translated into stronger earnings growth and one of the best equity returns in 2020.
  3. Asia remains the engine of global growth, helped by the emergence of significant intra-Asia trade that is helping the region to resist the downdraft of recovering, but slower paced, global activity. Its largest economy, China, continues its structural transition targeting higher quality growth.
  4. The unprecedented fiscal and monetary stimulus to combat the economic downturn due to COVID-19 have been very supportive. Looking ahead, we expect policymakers to: 1) gradually normalise fiscal and monetary policy; 2) continue structural reforms and the further opening up of financial markets; and 3) prioritise environmental sustainability.
  5. Key risks we monitor include: 1) COVID-19 developments; 2) Sino-US tensions; and 3) concerns over increasing debt. Although technology is expected to remain a sticking point in the Sino-US relationship, we foresee less uncertainty and risk in broader US-China relations, as we expect the new US administration to adopt a more rules-based, predictable approach that should benefit both Asian and Chinese equities.
  6. We are constructive on Asia/China equities and encourage an active investment approach given: 1) solid earnings growth in a growth-scarce environment; 2) under-owned portfolios; 3) favourable technical support from robust investor inflows; and 4) still-inefficient markets, with rich alpha potential in an increasingly volatile environment.

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